EU implements Pillar 2 Directive
On 1 January 2024, the European Commission announced the entry into effect of its “Pillar 2” regime establishing a 15 per cent minimum effective taxation for large multinational companies in EU Member States.
The announcement refers to the end of the initial transposition period provided for under Article 56 of Council Directive (EU) 2022/2523 of 14 December 2022 implementing Pillar 2 in the EU (the Pillar 2 Directive). Under the transposition provisions, EU Member States are obligated to bring into force the laws, regulations, and administrative provisions necessary to comply with the Pillar 2 Directive by 31 December 2023. These measures will then be applied in respect of the fiscal years beginning from 31 December 2023.
The Pillar 2 regime was globally agreed on in 2021 and unanimously adopted by EU Member States under the Pillar 2 Directive to address international tax reform. The Pillar 2 Directive also addresses situations where the parent company is located outside the EU in a low or no tax jurisdiction that lacks equivalent rules, reinforcing the minimum 15 per cent minimum taxation.
The regime applies to multinational and large-scale domestic groups with financial revenues exceeding €750 million annually. The coming into force of the Pillar 2 Directive aligns with the EU’s ongoing commitment to the OECD as regards the global tax reform.
The Pillar 2 Directive has been implemented in most EU jurisdictions but in some countries some delays have occurred and are being contemplated by the EU. Where delay occurs in implementation, it is possible that the relevant implementing legislation will provide for retroactive effect so that it is effective as from 1 January 2024. This would be consistent with the approach taken in other global tax reform measures including DAC6 (see here).
The European Commission has also published an extensive FAQ document addressing technical questions on the implementation of the Pillar 2 Directive in order to ensure consistency in application across the EU Member States (see here).
As regards Harneys’ EU jurisdictions:
- Luxembourg: Implementing legislation has been issued and adopted transposing the Pillar 2 Directive as of 20 December 2023, please see our earlier blog here.
- Cyprus: Draft implementing legislation has been published as of 3 October 2023 for consultation, but has not yet been implemented, please see our earlier blog here.
The European Commission’s press release can be found here.
